The fifty shades of grey of international reference pricing (IRP): it’s a connection probably lost on the majority of those flocking to see the film adaptation of E. L. James’ novel over last week’s Valentine’s Day weekend. For those of us in the world of P&R, however, the association may come a bit more readily. It is certainly true that in surveying the IRP landscape, one is struck by the myriad of forms this policy tool takes internationally.
This becomes apparent when we consider each of the components making up IRP in turn. To name a few, these include:
• The types of drugs subject to the policy
• The nature of the reference country basket
• The actual IRP formula in use
• The frequency of revisions
• The types of prices used
• Any other rules which may modify or inform one of the above depending on certain criteria
These components make room for plenty of diversity. Indeed, individual countries have adopted and adapted IRP to suit their changing circumstances, giving rise to a diverse set of policy frameworks worldwide. For industry, these shades of grey can have a profound impact on performance, meaning that while untangling the web of IRP is no easy task, it is nonetheless a critical one.
Dipping into the IRP palette
We start with the types of drugs subject to IRP. Globally, there is a real continuum, with Denmark at one end applying IRP exclusively to hospital-only medicines, and a country like Israel at the other applying IRP by active pharmaceutical ingredient (API), meaning that even generics fall under the regime. Then there are countries like France and Germany, where characteristics of the medicine such as added clinical benefit or level of innovation relative to comparators determine eligibility for pricing negotiations that rely in part on IRP. In this setting, products associated with little or no added benefit/innovation are typically relegated to a system of internal reference pricing. The key take-away for industry is that a product may be subject to IRP in some markets but not others, depending not only on asset category but potentially on how it compares to therapeutic alternatives.
Internationally, there is considerable variation in the size and composition of the basket of reference countries, with some markets opting for jumbo baskets of 30+ countries, and others focusing on a much smaller subset, chosen to reflect similarity in socio-economic indicators, accessibility of pricing data, and/or geographical proximity, amongst other factors. Arguably, the IRP formula (depending on its nature) and any additional rules associated with the basket likely hold more sway in determining outcomes under IRP than either of these former two parameters in and of themselves.
Consider, for example, the case of Brazil, where the country’s National Health Surveillance Agency (Agência Nacional de Vigilância Sanitária; ANVISA), in setting price caps for the private market, requires that so-called Category I drugs be marketed in at least three reference countries from its basket in order to utilise IRP. Otherwise, the drug is granted a provisional price, which is reviewed by ANVISA every six months until the provisional status can be dropped. Thus, the intricacies of additional but impactful rules determine how IRP actually works in practice, and its potential ripple effects outside the market in question. One can quickly gauge how outcomes under IRP are a complex interplay of launch sequencing and the frequency of IRP review in addition to the basic mechanics of IRP baskets and formulas.
There is also considerable diversity in terms of IRP reviews. Some markets such as Taiwan make use of IRP only at time of launch, while others rely on the tool for much more frequent price monitoring. A market such as Colombia, having recently introduced its IRP system in 2013, aims to apply IRP at least once a year in its ongoing regulation of prices; other markets aspire to do so with a frequency of every three months.
Changing shades-- IRP chameleons
IRP only makes sense if we narrow down what we mean by ‘price’ in a given reference country. Unsurprisingly, that definition too can vary from one IRP regime to the next, with policymakers facing limitations in what data they can access. While many countries reference ex-manufacturer list prices, some seek price estimates net of discounting. For example, in France, the Economic Committee on Health Products (Comité Economique des Produits de Santé; CEPS) may estimate discounts on a case-by-case basis where treatment costs are forecast to exceed a certain value per year per patient.
However, there are additional parameters to consider. When referencing prices, do countries insist that the brand name be the same? What about the strength? The pack size, the form, the market authorisation holder? Looking again at France, the CEPS does not require that the drug brand name, strength, form or pack size be identical in its reference markets, and may resort to a per-unit price calculation. In instances where this is not possible, for example due to differing forms, the CEPS will use a daily-treatment-cost methodology. While payers may tend to reference products sold by the same market authorisation holder, some countries may also consider licensees or co-marketers.
Furthermore, the IRP landscape is anything but a static field, as demonstrated in the post written recently by my colleague Milena about Bulgaria’s decision to abandon the practice of net price estimation, a change driven by the desire to simplify the system. Indeed, in a piece of research that IHS Life Sciences displayed at the recent ISPOR Amsterdam meeting in November 2014, we found that, in a sample of 38 different markets, 58% have changed their IRP framework in one or more ways since inception. Interestingly, countries having introduced IRP more recently appear just as likely to have made subsequent modifications as those having implemented it earlier in time. While exceptional economic circumstances may lie behind this recent bout of IRP tinkering, the fact remains that IRP serves as a dynamic policy tool, evolving in line with individual country circumstances and policy reforms.
Finally, there is also the question of formality – whether a market’s implementation of IRP is governed by a defined set of rules and regulations, from which there are few if any deviations, or whether IRP considerations form part of a broader negotiation. In our experience, there are certain markets where payers may or may not make recourse to reference prices, even if they maintain a quasi-formal IRP basket. The situation becomes even less clear-cut when markets engage in outright informal IRP, i.e. where countries outside a formally defined or even non-existent basket of countries may be referenced.
Working the grey matter
It’s no wonder if the colours on the IRP canvass begin to bleed together upon first viewing, given the many intricacies at play. For industry, it is paramount to understand how the IRP policies in one market impact upon and create ripple effects across the global market, requiring strategies and approaches that move beyond simple linear thinking.
While the IRP landscape may never be black and white, it is still possible to find a way to pierce through some of the ambiguity and unpredictability – the shades of grey – and make sense of the interconnected web that is IRP. Here in the IHS Life Sciences team, we have completed a number of studies on the topic of IRP, and regularly look at how tools can be developed to make sense of this ever-evolving landscape.
Learn more about our IRP research and download a sample chapter.